It’s Wednesday so I’m blogging less so I can write more elsewhere. And, we got a chance to sample some music – some of the best vibraphone performances were recorded today. Simon Jenkins wrote an op-ed in The Guardian on Monday (8 August 2022) – Who knows if Truss or Sunak are right on the cost of living crisis – where are all the economists? – It shows that my career has come to an end, as two Conservative leadership candidates offer diametrically opposed views on how to tackle Britain’s ‘cost of living crisis’. Well, he could have answered his own question. Who would want an “economist” opinion, I mean mainstream macroeconomists because they have an astounding track record of forecasting anyway. Most support the Bank of England’s kamikaze rate hike because they see monetary policy as an effective way to address inflationary pressures, and they agree that unemployment should be a policy tool rather than a policy objective. He may also point out in his article that who gets a platform in public debates on economic issues has a strong bias against those who might offer an alternative perspective. For example, if you’re not mainstream nor part of a “progressive, pro-European” network in London, try getting an Op Ed in The Guardian UK. With regard to these cost-of-living pressures, none of the mainstream economists the Guardian may publish would propose the nationalisation of energy supply, public transport, water and telecommunications. This is the best long-term solution to protect workers and low-income consumers. In addition, the latest US data showed that inflation has peaked and inflation expectations have fallen sharply. Has anyone mentioned the word “temporarily” here?
Where are all the economists?
Well, in answer to the question posed by Simon Jenkins, he should be glad they went AWOL, otherwise the debate will be derailed.
Suffice it to say that mainstream neo-Keynesian macroeconomists, even those who support Labour, will be delighted that the Bank of England is back in action to use unemployment to stifle aggregate demand in their vain quest to reduce inflationary pressures.
In vain — because it’s not an aggregate demand issue that I’ve explained many times over the past year or so.
When New Keynesians see inflation, they recommend raising interest rates.
now it’s right.
The current leaders’ debate in the UK is to juxtapose Sunak, who wants to reduce the budget deficit but provides financial aid to the lowest income households, with Truss, who wants tax cuts to benefit the highest earners, who hardly need any special government aid. this time.
Sunak also appears to favor tax cuts for high earners.
Truss wants to expand demand and push up GDP growth.
Simon Jenkins wrote:
Until recently, two members of the same cabinet appeared to be at opposite extremes of the economic spectrum. Both studied economics at Oxford University. They must have attended similar lectures and read the same books. What is their problem?
Simon’s problem is that they both studied economics at Oxford, attended similar lectures, and read the same books.
If the purpose is to introduce progressive policies to deal with the multinational crises the world faces, most of it is a poor preparation for a career as prime minister or prime minister.
Macroeconomics taught at Oxford is not educational. It’s an indoctrination of the Groupthink world to defend a failed paradigm.
Simon Jenkins wrote:
The latest dispute between Rishi Sunak and Liz Truss is whether the best way to deal with the cost of living crisis is to be cautious and help those most in need, or to cut taxes and “seek growth”. Neither is right.
Of course, both are wrong.
If The Guardian allows professional economists to express different economic views, then I can explain why.
The “cost of living” crisis has a structural dimension – privatization of essential services, etc., generating windfall profits at the expense of service quality and scope, has been a problem for decades.
It also has a temporary dimension – the coronavirus is still ravaging the workforce and preventing supply chains from returning to a “normal” state.
Then there’s OPEC.
And Putin.
The best solution is to protect the poor in the short term with fiscal policy and stop raising interest rates, which will only make the cost of living problem worse without addressing the long and short term elements of the problem.
Inflation will dissipate.
But if a recession is deliberately created, the remaining negative consequences will haunt the UK for a long time.
Pursuing growth is also not the solution, as it will only run into supply constraints and create more problems.
Unemployment is currently low in the UK, and while the quality of work and pay needs to improve significantly, at least people have jobs.
So the government should make sure that the ridiculous energy price hikes I’ve read about happen soon and don’t hurt those who can’t afford it.
Then work to nationalize sectors that provide essential goods and services to ensure they return to public service rather than profiteering.
Another question that Simon Jenkins sidesteps is who gets a platform in the public debate.
First, he should strive for more diversity in his dissertation.
A lot of people seem to agree with me that this is a short-lived inflationary event
On August 8, 2022, the Federal Reserve Bank of New York issued a press release – Inflation expectations fell across the board – inform readers of their latest – Consumer Expectation Survey (July 2022) – Indicates:
Median inflation expectations for the next one and three years both fell sharply in July, to 6.2% and 3.2%, respectively, from 6.8% and 3.6% in June.
and:
The median inflation forecast for the next five years from the SCE’s monthly core survey has also fallen to 2.3% since the start of the year, from 2.8% in June. Expectations for higher gas and food prices in the year ahead have fallen sharply.
Here is a chart of a series of inflation expectations for the next one and three years.
The investigation also found:
Median inflation uncertainty — or uncertainty about future inflation outcomes — declined slightly over the next one and three years. Uncertainty over the next five years has dropped significantly.
This tells us that people are understanding that this is a temporary phenomenon driven by many different reasons, however, there is no propagation mechanism (like the wage-price spiral) that is likely to persist.
More specifically, the survey found:
1. “The median expected change in house prices a year from now fell sharply from 4.4% to 3.5%, the third consecutive decline and the lowest reading in the series since November 2020.”
2. More importantly:
Expectations for price changes in the coming year fell sharply by 4.2 percentage points (to 1.5%) in natural gas prices and by 2.5 percentage points (to 6.7%) in food prices. The drop in expected natural gas price growth was the second-largest drop in the series, slightly less than the 4.5 percent drop in April this year. Food price growth expectations have fallen by the most since the series began in June 2013.
3. The median five-year inflation forecast fell to 2.35 in July from 3.02% in March 2022.
The implication of this is that supply constraints and energy fraud have pushed up short-term expectations, in line with CPI pressures, but these pressures are expected to dissipate quickly.
To see how the current situation is different, I created this chart based on price expectations data from the University of Michigan, which shows consumer expectations for inflation over the next 12 months.
First, expectations have fallen by 0.1 percentage points since April 2022 (hard to judge on this chart).
Second, a fall back to the lower, stable expected inflation of the 1979s will take years rather than months, which appears to be happening this time around as supply constraints ease.
The Federal Reserve Bank of Cleveland also provides a series of inflation expectations dating back to January 1982.
In October 2009, the Bank released a discussion paper outlining— A new way to measure inflation expectations. Here is a non-technical version of this 2011 paper – Inflation Expectations, Real Interest Rates, and Risk Premiums: Evidence from Inflation Swaps.
The latest data released by the Federal Reserve Bank of Cleveland on July 13, 2022 – inflation expectations – Indicates:
1. 1-year expected inflation was 3.31% in July compared to 4.23% in June 2022 – and looks to have peaked at that level.
2. The 10-year expected inflation rate in July 2022 decreased by 2.22% from 2.4% in June 2022 – a decline.
2. Their estimate for the inflation risk premium also fell from 0.47% to 0.37% between June 2022 and July 2022.
Therefore, “financial markets” expect inflation to dissipate over a longer period.
Here are the 1-year and 10-year expectations charts for the Cleveland model.
These charts are interesting because they show that long-term inflation expectations are holding fairly steady around the Fed’s 2% anchor.
Therefore, short-term expectations for large month-to-month fluctuations in energy and housing prices are more volatile and tend to pay close attention to the actual CPI series.
Music – Lenny Hibbert
Here’s what I’ve been listening to this morning at work.
Lenny Hibbert – is a Jamaican vibe player and bandleader.
He recorded two albums – studio one — Kingston, Jamaica.
In the 1960s he was a leading musician in the Kingston jazz scene and a regular studio musician for producers – Clement ‘Coxsone’ Didier – in his family band – sound dimension.
The song was originally released by Jamaica’s Studio One on Lennie Hibbert’s 1971 album – More Creation.
The album cover has no information on who the supporting musicians are. It just says:
An avid music lover, he is proficient in any kind of rhythm – rag, bop, ska, calypso, soul, rock-steady, jazz, etc. Lennie, one of today’s hottest Vibists, has been with the Jamaican Marching Band for 11 years, 15 years as Bandmaster, Alpha Band, and 18 years as Orchestra Leader… You’ll hear more of Lennie on this latest album The exciting sound of Hibbert.
We believe this will be Lennie’s biggest release to date, and so will you. So charge up your speakers and enjoy the generosity of Lennie Hibbert, one of the most outstanding Vibist today.
well then, good luck.
By the way, a great album.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
